Ansgar Africanus Mushi Director of Research, Actuarial and Policy Development, Social Security Regulatory Authority - Tanzania

DISCRIPTIONON: the pension system COVERS only a small fraction of population. It is mainly formal employment, which is predominantly is dominated by public servants. The set of benefit covered is limited to long term

benefits such as old age, survivors, disability, invalidity.

In some schemes there is a mix of pension and non-pension benefits. E.g. NSSF – Tanzania.

In each country there is a mix of Defined Benefit plan an Defined Contribution plan.

Most of private sector schemes are defined contribution with some few exceptions, while most of public servants schemes are DBs.

Define Benefit Plans (DB). • DB schemes have generous benefit formulae • They are in most cases unfunded (Uganda and

Kenya have higher degree on this) • The system is imbedded in the government

sources of finance Defined Contribution Plans:

• Benefit depends on members accumulation (employment) and return on investments

• Most of the schemes are employers’ initiatives and voluntary with exceptional on NSSFs

Investments are mainly decided internally and locally managed except Kenya where Regulatory framework is in relatively advanced stage compared to other EA Countries.

There is limited investment opportunities in the economy

Low Investment returns over the years Misuse of powers to decide which

investment to be taken Most of schemes are self-regulated in most

aspect.

All Mandatory schemes (DB and DC) are publicly managed with strong link with specific parent ministry in the government.

All Occupational Schemes are privately managed, (larger population under these schemes are in Kenya)

Board of Trustees in public schemes are guided by some element of ILO guidelines and legal and quas-political drives in specific countries.

Low coverage Generous Benefits to some groups of Population (e.g.

Civil Servants) DB is creating financial burden to the government DC returns are too small The structure of the system does not provide

opportunity for extension and growth. The system is not regulated enough for better results

to members and economy Too much Political interference Still Uganda and Kenya has Unfunded schemes for

Civil Servants which creates burden to government budget.

Tanzania: A number of Actions have being undertaken and initiated • Conversion of NPF (DC) to DB Pension Scheme –

1997/96 • Converting Civil Servant Schemes in to

Contributory scheme from Pay As You Go Scheme – 1999 (DB)

• LAPF (Provident) to LAPF Pensions in 2005 (DB)

Establishment of the National Social Security Policy with guidance to initiate Autonomous Regulatory Body.

Enactment of Social Security Regulatory Authority with mandate to supervise the social security sector

Initiating reform process with clear goals and targets.

Reform intends to strengthen and introducing mechanisms for extension of social security system to the majority of Tanzanians

To reduce financial burden – pension liability to the government by creating self financing schemes

Establish fair system to Tanzanians

The achievement of the vision will take time and in terms of strategy it may need to be divided into a number of phases. This will involve three phase: Extension and harmonisation

phase, Stabilisation phase, Growth and prosperity phase.

Financing the reform and transitional cost involved • Financing pre-99 pension liability of the civil servant

(Tanzania) • Establishing two pillar system to reduce financial

burden of the government in the future. Establishing fair and sustainable system

• Harmonising legal framework for all schemes • Harmonisation of benefit structure and formulae for

all public and mandatory schemes • Coordinating all public funds under one

administration system Vs Merging them to one scheme

Technically Reforms has positive impact to the system:

Proposals on the table provides enough and fair reform options technically

Reforms option discussion are dominated by Political and personal gains

It takes too long to make decisions

Thank you

WORLD BANK CONTRACTUAL SAVINGS CONFERENCE

JANUARY 9-11, 2012WASHINGTON, D.C.

JAPHETH KATTO

CEO , CAPITAL MARKETS AUTHORITY - UGANDA12/21/2011 1

Pension Systems in the East African

Community : An Overview

Uganda’s Pension System

Uganda’s Journey to Pension Reform

Lessons and Emerging Issues

Conclusion

12/21/2011 2

Save for Burundi, each East African Country has a

regulatory agency responsible for Pensions.

No social pensions for the aged population save for

Kenya & Uganda – pilot

Coverage focuses on the formal sector

Informal sector programs inadequate; initiatives in

Kenya (Mbao Pension Plan)

More reforms required in the region to extend

coverage and restructure expensive unfunded public

service schemes in Kenya and Uganda12/21/2011 3

The current broad classification of pension systems in EAC is as follows:

Social pensions – small cash transfers to the poor above 65 years [Zero Pillar]- pilot schemes in Kenya and Uganda

The mandatory pension schemes for all formal employees - [1st Pillar]

▪ National social security pension schemes

Supplementary pension schemes [2nd Pillar]

▪ Private occupational pension schemes

▪ Civil service pension schemes

▪ Local Authorities’ workers pension schemes

▪ Parastatal workers pension schemes

▪ Armed forces pension schemes

▪ Parliamentary pension schemes

Private individual retirement saving plans [3rd Pillar]12/21/2011 4

0.9

4.5

1.5

0.3

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Uganda Kenya Tanzania Rwanda

USD

(bn

)

5SOURCE: Analyzed Financial Statements for the period between 2009-2011 provided in September 2011 by various mandatory pension schemes and pension regulators in EAC.

Source;NSSF Uganda 6

Issue Kenya Burundi Uganda Rwanda Tanzania

System Design

Largely DC save for Civil Service Scheme & few large DB schemes

DB systemFew private DC schemes

DC system savefor Civil Service/ Military schemes

DB system with few DC Private schemes

All DB save GEPF

Sector Control

Large private sector participation

State controlledschemes

Largely state controlled but moving to private sector participation

State controlled scheme

State Controlled schemes

Supervision Agency and Ministry

RBA [ Finance & Labor]]

No Agency URBRA [Finance] BNR [ Finance] SSRA [ Labor]

Basic law Legislation &Trust law

Legislation& Contract

Legislation & Trust law

Legislation,Trust & Contract law

Legislation & Trust law

Licensing Regime

Schemes, asset managers, custodians &administrators

NoRequirement

Schemes, trustees, asset managers, custodians &administrators

Schemes, trustees, asset managers, custodians &administrators

Schemes, assetmanagers & custodians

Summary Comparisons

Source : Legal Overview of Retirement Industry and differences across EAC David Nyakundi , RBA Kenya

7

12/21/2011 8

Pension system covers a relatively small portion of thepopulation.

Private sector employees are covered by the NSSFmandatory provident fund and some voluntaryoccupational pension schemes.

The number and funding status of voluntaryoccupational schemes is not clearly ascertained asthese schemes are currently not regulated andsupervised.

However the fund managers licensed by the CMAmanage 19 occupational pension funds with overUGX 220 bn (USD 92 m)

12/21/2011 9

NSSF covers about 450,000 workers which is 3.5 % of the working population.

NSSF assets are internally managed. A small portion outsourced to two CMA licensed fund managers.

Corporate Governance at the NSSF has been a challenge - five Managing Directors in the last 13 years.

There has been successful prosecution of one of the former managing directors of NSSF for causing financial loss.

12/21/2011 10

The Public Service Pension Fund (PSPF) non contributory.

PSPF covers about 263,854 employees.

Pension Arrears have been reduced from over UGX 300 bn (USD 125 m ) to UGX 68 bn ( USD 28 m) over the last 10 years.

The Pensions Act amendment in 1994subjected all local authorities workers to thePensions Act Cap 286

12/21/2011 11

PSPF[1946] AFPS[1939] NSSF[1985 OPS

LEGAL

FRAMEWORK

Pensions Act [Cap

286]

Armed Forces

Pensions Act [Cap

298]

NSSF Act [Cap 222] Uganda Retirement

Benefits Regulatory

Authority Act 2011 /

Trust Law

COVERAGE Civil servants;

police; prison

officers; judiciary;

doctors; teachers

Public officers in

Local Authorities

Military officers Formal sector workers in

companies/institutions

with more than 5

employees

Formal workers in

companies/institutions

with voluntary pension

plans

MEMBERS Approx 263,854 Over 45, 000 Approx 450,000 Not Available

FUNDING STATUS Unfunded Unfunded Funded Funded

BENEFIT

FINANCING

Central Govt.

revenues

[Non Contributory]

Central Govt.

Revenues [Non

Contributory]

Accumulated individual

accounts [ employer 10% -

Employee 5%] Contributory

Scheme funds -

Contributory as per plan

rules

DESIGN DB DB DC DB or DC depending on

plan rules

BENEFIT Annuities and Lump

sums

Annuities and Lump

Sums

Lump Sums -Provident

Fund

Annuities and Lump

Sums depending on plan

rules12/21/2011 12

Summary Comparisons of Uganda’s Pension System

12/21/2011 13

12/21/2011 14

There has been overall consensus on

the need to reform the pension system

in Uganda.

The African Peer Review Mechanism

(APRM) Country Review Report 2009

recommended that there was need for

reform, regulation and liberalization of

the pension sector.

12/21/2011 15

1995 - December PWC advised on the

NSSF Strategic

Corporate Plan

Issues- improvement in

Quality of products, customer service

Operating efficiency ,return on

investment

12/21/2011 16

April 1998- IMF advised on the Reform

of the Government Pension system

Issues Address equity

between pensionersImprove legal

,financial ,administrative

disciplinesStart a contributory, funded, actuarially

sound system with a lower benefit

2001- Deloitte & Touche

Reviewed the Public Service

pension Arrangements .Issues

Pension Arrears

(Ush, 260Billion / USD109),

rapidly increasing costs

Ineffective plan design and

administration

12/21/2011 17

The Stakeholders

Transition Group

(STG) 2003 instituted

by the Ministry of

Gender,Labour and

Social Development

Pension Reform Task

Force (PRTF) 2004

instituted by the

Ministry of Finance in

2004

The Stakeholders Transition Group (STG)

Instituted in January 2003 by the Minister ofGender,Labour and Social Development

A comprehensive initiative to assist Government with thedevelopment of a comprehensive legal, regulatory andfinancing framework for social security reforms.

Key Findings

Review of existing legislation

To provide constitutional protection of social security and pension rights to all Ugandans.

Consolidation of all pieces of legislation on retirement schemes, social security institutions, and pensions.

12/21/2011 18

Establishment of a competent independent regulator for the entire social protection sector.

Make contribution mandatory

All social security and pension arrangements be funded.

Liberalisation of the social security and pension sector.

12/21/2011 19

Instituted by the MOFPED in 2004

The Pension sector should be liberalised

There should be a mandatory level of contributionfollowed by a discretionary level.

An independent regulatory body should be established.

In the long run pensions, capital markets and insuranceshould be combined to have one regulator for the NonBank Financial Institutions.

Uniform tax regime for all pension providers and taxincentives.

12/21/2011 20

Establishment of a Regulator

Uganda Retirement Benefits Regulatory

Authority Act 2011

To regulate the establishment, management and

operation of retirement benefit schemes in Uganda both

in the private and public sectors.

To supervise institutions which provide retirement

benefits products and services.

To protect interests of members and beneficiaries of

retirement benefit schemes.

12/21/2011 21

Reform of the Public Service Pension Fund

To provide sufficient funding to clear pension arrearsand transform the current system into a contributoryscheme.

Proposals advanced in the Liberalization of theRetirement Benefits Sector Bill

▪ PSPF to be a pre-funded DC

▪ Those with 15 years service or less to be givenredemption bonds redeemable at retirement

▪ Those over 15 years service will continue undercurrent arrangement

12/21/2011 22

Liberalization

Triggered by poor governance and

underperformance of NSSF

Unsustainable state of the public service

pension fund

the Liberalization of the Retirement

Benefits Sector Bill was tabled before

Parliament in 2011.

12/21/2011 23

The objects of the Bill are to:

provide for liberalization of the retirement

benefits sector.

remove the monopoly of a single

retirement benefits scheme over

mandatory contributions.

provide for fair competition among

licensed retirement benefit schemes.

12/21/2011 24

Implications of Liberalization:

NSSF will not enjoy monopoly of statutory

contributions

It will compete with other private funds who will be

permitted to collect statutory contributions from

employers and members.

External fund managers will manage pension assets

Separation of Trusteeship, management and

administration of pension funds

Adoption of international best practice

12/21/2011 25

Regulatory framework – URBRA Act yet to beoperationalised. Liberalisation Bill – has manygaps.

Armed forces pension scheme is a noncontributory defined benefit scheme.

Statistical data on retirement benefit schemeslacking.

Political will

Vested interests

Skepticism from stakeholders over the pensionreform.

12/21/2011 26

Operationalisation of the URBRA Act which

commenced in September 2011.

Dual licensing regime for fund managers

Investment restrictions in the URBRA Act.

Regulatory Models; Prudential Vs Conduct of

Business; Single Vs Integrated.

Inadequate in-country expertise.

Conflict of laws

12/21/2011 28

Development of a national pensions policy

Sequencing – regulation and liberalization

which comes first?

Building stakeholder consensus

Implications of implementation of the EAC

Common Market protocol

Negotiation of the EAC Monetary Union

Protocol

12/21/2011 29

The Pension journey in Uganda like in many

other countries is long, complex and controversial.

The road is not smooth , it has pot holes,

road blocks, diversions, detractors but like the

road to heaven we believe it will lead to happiness

by all stakeholders.

12/21/2011 30

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